With March 15 just around the corner, it's important to get a grip on advance tax payments. This guide breaks down the essentials of advance tax, including the critical deadlines and how not to get caught out by interest charges, according to the Income Tax Act, 1961 (Sections 207 to 219, and sections 234A, 234B, and 234C).
What is Advance Tax?
Advance tax means paying your income tax in parts throughout the year instead of a single lump sum at the end. If your tax liability for the year, after TDS, is more than ₹10,000, you need to pay advance tax. However, senior citizens who don't run a business are off the hook for this one.
When to Pay?
The advance tax is paid in four installments:
- First Installment: 15% of tax by June 15
- Second Installment: 45% of tax by September 15
- Third Installment: 75% of tax by December 15
- Fourth Installment: 100% of tax by March 15
Missing these deadlines can lead to interest charges.
Interest Charges Explained
- Late Filing (Section 234A): If you're late filing your return, you'll pay 1% interest per month on the tax due.
- Not Paying Enough Advance Tax (Section 234B): If you underpay your advance tax, expect a 1% interest per month charge on the shortfall.
- Paying Advance Tax Late (Section 234C): If you're late or pay less than you should in any installment, you'll pay interest on the missed amount.
Key Points Simplified
- Who Pays and How Much? (Sections 207-210): These sections tell you if you need to pay advance tax and how much.
- Paying on Time (Section 211): This part gives the schedule for when to pay your installments.
- Underestimation Penalty (Section 216): If you underestimate your tax and pay less early on, you'll owe 15% interest on the difference.
- Defaulting (Section 218): If you miss a payment, you're considered in default.
- Getting Credit (Section 219): Any advance tax paid is credited against your tax due for the year.
Avoiding Penalties
To avoid interest penalties:
- File on Time: Make sure you file your return by the due date to avoid the interest under Section 234A.
- Estimate Accurately: Do your best to accurately estimate your tax to avoid penalties under Sections 234B and 234C.
Conclusion
Paying your advance tax on time and accurately is crucial to avoiding unnecessary penalties. The key dates to remember are June 15, September 15, December 15, and March 15. By keeping these guidelines in mind, you can ensure you're on the right side of the tax laws and avoid any last-minute rush or penalties as the financial year ends
